Goldman Sachs says the lithium bear market may not yet be over, as lower spodumene prices see cost support fall for integrated lithium chemical producers in China
\nCore Lithium downgraded to a sell, Liontown upgraded to neutral after the collapse of premium priced Albemarle deal
\nFMG continues to approach all time high after AGM and iron ore price run<\/p>\n
Those rapscallions at Goldman Sachs are at it again, pulling a fastie on the Australian lithium sector with a call that prices could yet go lower.<\/p>\n
For anyone playing at home, spot spodumene prices have now fallen over 75% this year and we\u2019re a day out from knowing if the price quoted by Fastmarkets, one of the prices used as a benchmark by Aussie producers, is going to drop again.<\/p>\n
It\u2019s currently paying US$1650\/t, with chemical prices in China down similarly to ~US$19,400\/t for lithium hydroxide and ~US$20,400\/t for lithium carbonate.<\/p>\n
A broken clock is of course right twice a day and Goldman has been bearish on lithium for a LOOOOOONNNGGG time. They say it\u2019s \u201ctoo early to call the bottom of the lithium bear market\u201d, which they obviously would, having called 2024 lithium prices of US$11,000\/t back in late 2022, compared to market consensus at the time of ~US$29,000\/t.<\/p>\n
READ: Eye on Lithium: Canaccord mining analyst disagrees with Goldman Sachs \u2014 \u2018lithium supply always disappoints\u2019<\/a><\/p>\n READ: Ground Breakers: MinRes boss wants to know what Goldman Sachs was smoking when it called the end of the lithium boom<\/a><\/p>\n READ: Goldman Sachs says battery metal bull market is over \u2013 at least until 2024<\/a><\/p>\n They say now that despite a 70% fall in prices in China, the size of an upcoming surplus from rising supply against smaller retail EV growth is yet to be fully factored in by the market.<\/p>\n As spodumene prices have fallen \u2014 which due to a shortage of rock has lagged drops in the less tightly supplied chemical sector \u2014 GS says the marginal cost of production has come down as well, also putting the integrated lepidolite cost below levels estimated by other forecasters and industry figures.<\/p>\n \u201cIn the team\u2019s view, current elevated marginal cost levels for non-integrated lithium carbonate puts c.80kty capacity currently in a loss-making position, though integrated costs of production using purchased spodumene are expected to fall on average to a cost of ~US$14,000\/t LCE on lagged correction in spodumene prices and our China team has maintained their estimate of total cost for the integrated lepidolite between US$11-14k\/t LCE, substantially below current price levels,\u201d GS\u2019 Aussie analysts Hugo Nicolaci, Paul Young and Elise Bailey said.<\/p>\n \u00a0<\/p>\n Goldman have estimated a slight surplus for lithium in 2023 of 29,000t LCE, but say despite higher long term demand expectations won\u2019t stop a larger estimated surplus of 202,000t LCE in 2024 amid expansions and new mine starts.<\/p>\n \u201cOur China team estimate that the implied lithium chemical inventory has continued to increase across the China battery supply chain, in the form of both raw materials and end-products, with the increase mostly on LFP batteries,\u201d GS\u2019 number-crunchers said.<\/p>\n The real strugglers are the non-integrated producers, whose refineries are eating out of the money estimated costs of US$19,000\/t and US$27,000\/t for lepidolite and spodumene feedstocks on average.<\/p>\n They also think suggestions supply is always slow to ramp up is overblown. While it is a common refrain that mines struggle to hit their targeted production rates for years \u2014 Core Lithium\u2019s (ASX:CXO)<\/a> Finniss mine this year is a case in point \u2014 Nicolaci, Young and Bailey say on average new projects have reached 60-80% of their nameplate capacity within 9-12 months of starting up.<\/p>\n They are then able to increase recoveries from initial levels of 55-60% as they lower their target spodumene product grades.<\/p>\n \u201cFurthermore, feedback from these existing producers (including at recent site visits) is that these types of projects are getting easier with learnings from their own experiences and a growing pool of expertise in the industry.\u201d<\/p>\n Has this updated take on price made any difference to the Aussie producers?<\/p>\n The biggest downgrade from GS comes for Core, which is down only 10% this year with ASX equities propped up by M&A action and hopes thereof. Trading at an NAV multiple of 1.2x on GS\u2019 numbers it\u2019s a relative sell in a falling lithium price environment, amid concerns it may struggle to fund its second mine in the NT \u2014 the BP33 underground deposit \u2014 from cashflow.<\/p>\n Nicolaci et al also say underground mining costs are up around 40% in recent times, with an FID due there in the March quarter.<\/p>\n At the same time, Liontown Resources (ASX:LTR)<\/a> has been upgraded to neutral after the end of Albemarle\u2019s $3 per share, $6.6b attempt to buy the developer of the 500,000tpa Kathleen Valley mine out, fizzled. Its shares are back at $1.50, half the bid price and around 20% below a recent $1.80 equity raise and GS says production risks for the half-complete Kathleen Valley are now more prices in.<\/p>\n GS\u2019 favourite Aussie lithium stocks are IGO (ASX:IGO)<\/a> and Allkem (ASX:AKE)<\/a> on free cash flow and growth metrics respectively, but they said most Australian producers\u2019 all in sustaining costs remain well below its long term real SC6 concentrate price of US$1000\/t.<\/p>\n \u00a0<\/p>\n <\/span><\/p>\n \u00a0<\/p>\n Despite copping a first strike at an AGM yesterday hallmarked by the sheer lack of curiosity from investors in the room<\/a>, Fortescue (ASX:FMG)<\/a> rose again this morning to the cusp of an all time high, hitting $25.63 on a 0.9% gain early doors after iron ore prices bounded to US$134\/t on Chinese stimulus hopes.<\/p>\n Andrew Forrest yesterday shrugged off questions about the director\u2019s payments which prompted the more than 50% no vote on its remuneration report from key proxy advisors. He played a similarly straight bat to questions about allegations of an inappropriate relationship involving Forrest checked and dismissed by the FMG board and queries around a lawsuit from a company linked to American hedge fund billionaire Paul Tudor Jones.<\/p>\n They say you don\u2019t look a gift horse in the mouth though, and even as FMG drops serious cash on green energy projects<\/a> it insists will deliver \u201cdouble digit returns\u201d but for which hard and fast financial metrics are hard to come by, strong iron ore prices are delivering super-high margins for its low cost Pilbara iron ore operations, the fourth largest in the world. <\/p>\n That means cold hard cash in the form of dividends in a few months\u2019 time, and investors like that.<\/p>\n BHP (ASX:BHP)<\/a> and Rio (ASX:RIO) <\/a>were also, predictably, higher. <\/p>\n Lithium stocks were down but gold miners dominated the gains in the mid-caps, with De Grey Mining (ASX:DEG)<\/a> 3% higher a day after pushing the resource at its Hemi gold project \u2014 one of the world\u2019s largest undeveloped mines \u2014 beyond 10Moz.<\/p>\n Bullion hit US$2000\/oz in the US overnight but could come under pressure after late release FOMC minutes firmed the dollar, showing the US Fed remains committed to its goal of returning the rate of inflation to 2%, without signalling any potential rare cuts on the horizon.<\/p>\n \u00a0<\/p>\n <\/span>\u00a0 The post Ground Breakers: Goldman Sachs, of course, thinks lithium prices could go lower<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"What does that mean for Aussie producers?<\/h2>\n
GS lithium coverage share prices today<\/h2>\n\n
Iron ore rises even further<\/h2>\n
Ground Breakers share prices today<\/h2>\n\n
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